The European Parliament failed to pass key components of EU climate legislation on Wednesday 8th of June. Following conservative-led efforts to water down positions on the reform of the EU’s carbon market, the implementation of a carbon border tax, and the establishment of a Social Climate Fund, legislators declined to adopt positions in a series of decisive votes.

Three proposed legislation, part of the Fit For 55 package, are on hold pending political consensus after MEPs rejected the report on the revision of the EU Emissions Trading System:

  • The Parliament rejected the draft law on Emissions Trading System (ETS) reform by 340 votes to 265, with 34 abstentions, which now is referred back to committee.
  • Members voted in plenary on the Social Climate Fund legislation revisions, but the final vote was postponed pending political consensus on the future of ETS reform.
  • The EU Carbon Border Adjustment Mechanism (CBAM) was referred back to committee ahead of the votes on the amendments.

What is the Fit For 55?

It is a package proposed by the European Commission that aims at decreasing net greenhouse gas emissions by at least 55 percent by 2030, compared to 1990 levels, in the EU’s climate, energy, land use, transportation, and taxation policies. These carbon reductions must be achieved in the next decade if Europe is to become the world’s first climate-neutral continent by 2050. Under the Fit For 55 package we can find the European Green Deal and the European Climate Law.

 What is ETS?

The EU ETS 1 (Emissions Trading System) is a cornerstone of the EU’s policy to combat climate change and its key tool for reducing greenhouse gas emissions cost-effectively. The EU ETS 1 works on the principle of ‘cap-and-trade’. It sets an absolute limit or ‘cap’ on the total amount of certain greenhouse gases that can be emitted each year by the entities covered by the system. Under the EU ETS 1, regulated entities buy or receive emissions allowances, which they can trade with one another as needed. At the end of each year, regulated entities must surrender enough allowances to cover all of their emissions. If a regulated entity reduces its emissions, it can keep the “saved” allowances to cover its future needs or sell them to another installation that is short of allowances.

To address the lack of emissions reductions in road transport and buildings, a distinct new Emissions Trading System (ETS 2) for fuel distribution for road transport and buildings has been proposed by the European Commission. This is what failed to pass in the European Parliament vote on June 8th 2022.

 What is the Social Climate Fund?

As part of the revision of the EU emissions trading system (ETS 1) under the Fit for 55 legislative package, the European Commission is proposing to extend emissions trading to the building and road transport sectors. Emissions from these sectors will not be covered by the existing EU ETS, but by a new, separate emissions trading system ETS 2. To address any social impacts that arise from this new system, the Commission proposes to introduce the Social Climate Fund.

The Fund should provide funding to Member States to support measures and investments in increased energy efficiency of buildings, decarbonisation of heating and cooling of buildings, including the integration of energy from renewable sources, and granting improved access to zero- and low-emission mobility and transport. These measures and investments need to principally benefit vulnerable households, micro-enterprises or transport users. The Social Climate Fund will start to be operational during the last two years of the Recovery Instrument and the Recovery and Resilience Facility (2025) that are the Union measures to mitigate the economic and social impact of the COVID-19 pandemic and make Union economies and societies more sustainable, resilient and better prepared for the challenges and opportunities of the green and digital transitions. The Social Climate Fund key objectives are: to finance temporary direct income support for vulnerable households; to support measures and investments that reduce emissions in road transport and buildings sectors and as a result reduce costs for vulnerable households, micro-enterprises and transport users.

Next steps

The Committee on the Environment, Public Health and Food Safety will first discuss the matter next week among political groups’ coordinators, in order to find a way forward on the files. The aim is to vote the new file at the plenary session of June 23rd  2022.

You can find the detailed breakdown per country at the European Parliament’s website.

To learn more about current calls for proposals or Eurodiaconia’s funding events, please don’t hesitate to get in touch with our our Projects and EU Funding Officer Giorgia Signoretto at